Saturday, May 30, 2015

My article demonstrating the empirical soundness of a simple labor theory of value needs updating. In particular, I should calculate the rate of profits on total capital. So I need data on both constant and circulating capital, not just circulating capital.

Or, at least, I need data on depreciation expenses by some consistent set of conventions. In other words, I need data on gross and net investment. Perhaps it would be sufficient for empirical approximations to have this data on the country level for every country or region in the world. I do not expect to find such data broken down for each country by industry.

Wednesday, May 20, 2015

"In the conventional specification, total capital K is implicitly defined as being proportional to the sum of all different types of capital. This definition implies that all capital goods are perfect substitutes. One additional dollar of capital in the form of a truck has the same effect on the marginal productivity of mainframe computers as an additional dollar's worth of computers. Equation (1) expresses output as an additively separable function of all the different types of capital goods so that one additional dollar of trucks has no effect on the marginal productivity of computers." -- Paul Romer (1990).

Does Romer think that the so-called factor price curve for all techniques must be an affine function? That price Wicksell effects are always zero? Or maybe he just is trying to buffalo his reader with an ill-thought out use of mathematical symbols.

On his twitter feed, he expresses a disinterest in knowing what he is talking about:

"Sorry, but the capital controversies were a waste of time. No relevance then or now." -- Paul Romer, 16 May 2015, 1:09 PM.

I suppose one might possibly be able to defend this view:

"Economists usually stick to science. Robert Solow (1956) was engaged in science when he
developed his mathematical theory of growth. But they can get drawn into academic politics. Joan Robinson (1956) was engaged in academic politics when she waged her campaign against capital and the aggregate production function." -- Paul M. Romer (2015).

One might say Solow was looking to empiricalism when he developed his non-rigorous, loose theory of growth. And, I suppose one could say that some political views were involved in Joan Robinson's insistence that Keynes' theory applies to all runs, both the short run and the long run. And in her attempt to combat the development of pre-Keynesian theories after Keynes, even if such developments were the product of those who called themselves Keynesians in some other context.

But to make such an argument, one would have to have read at least some of Joan Robinson's work from the era. It is clear that Romer has not:

"When I learned mathematical economics, a different equilibrium prevailed. ...when economic theorists used math to explore abstractions, it was a point of pride to do so with clarity, precision, and rigor. Then too, a faction like Robinson’s that risked losing a battle might resort to mathiness as a last-ditch defense, but doing so carried a risk. Reputations suffered.

If we have already reached the lemons market equilibrium where only mathiness is on offer, future generations of economists will suffer... Where would we be now if Robert Solow’s math had been swamped by Joan Robinson’s mathiness?" -- Paul M. Romer (2015).

When, during the Cambridge Capital Controversy, did Robinson try to buffalo readers with pretend rigorous manipulations of imprecisely defined mathematical symbols. How about never? Is never good for you?

Saturday, May 16, 2015

I think it important to oppose errors, both when they are formulated by supposedly rigorous economic thinkers and whenthey are popularly repeated. The relationships between ideas on different levels can be complicated.

Until recently at least, surveys of economists showed that they, by and large, accepted the mistaken teaching.

As I understand it, "free trade" is a policy area where economists have even more agreement, based on mistaken theory. (I suppose I should include a link to survey of economists somewhere in this post. Any suggestions?) The book from which the following quote is taken contains a structured literature survey, and is written for the general reader:

"Even if I were wrong about this, and the most sophisticated of mainstream economists did think that there was something flawed about the connection between free trade policies and comparative advantage on its own terms (and not merely where its assumptions have been debased), a further point should be raised... We are here engaged in a project of critiquing the ideological effect generated by comparative advantage - of the rationalization that it provides for certain kinds of policies and socioeconomic arrangements. The views of the most sophisticated of academic economists are one - although not the only - part of this, particularly when a less sophisticated version of their ideas predominate outside the halls of economics departments. The manner in which the ideas of intellectuals permeate education, the media and public debate are often more important to the practices of actual agents, policy-makers, and so on, than the most sophisticated renderings of those ideas that emerge from the academy. It matters little if the most sophisticated of economists doubt the connection between free trade and comparative advantage if politicians, commentators, policy-makers or indeed, the public at large, buy the connection between the two and therefore support free trade policies. Indeed, my point - and this enquiry as a whole - is lent its sharpness by its relevance to the world of action, to policy, to normative concerns, to what people do - and think is right to do - because of the ideas that are peddled by intellectuals." -- Vishaal Kishore (2014). Ricardo's Gauntlet: Economic Fiction and the Flawed Case for Free Trade (Anthem Press).

Thursday, May 07, 2015

Policy changes that raise the level of growth of the economy are more important than one over changes to the level of output1.

Free trade is a desirable policy.

This policy preference falls out of the theory of comparative advantage.

Abolishing protectionist tariffs will result in a one-time increase of the level of output of the economy, but not the rate of growth.

As I understand it, Post Keynesians generally think theories of growth cannot be neatly be separated from theories of business cycles - that is, theories of short run fluctuations in the level of output. This intertwining complicates policy recommendations. Nevertheless, one can look back to Keynes2 to see a concern with economic growth.

It is hard to see how the two beliefs in the list above are consistent. Why should mainstream economists these days care much about whether countries put in place so-called free trade agreements? Maybe the question is one of who shouldgovern. Anyways, economists in the public sphere should strive to be clear on what they advocate, and why they do.

Footnotes

Robert Lucas famously said (that is, I do not know where), "Once you start thinking about growth, it's hard to think about anything else". I do know that in Lucas (1987), he estimated that consumers "would surrender 42 per cent across the board [in consumption] to obtain an increase in the growth rate from [3 per cent] to [6 per cent." On the other hand, to eliminate aggregate consumption variability of the magnitude seen in the USA from the end of the Second World War to the 1980s would be worth "something less than a tenth of a percentage point" in average consumption.

Keynes wrote this paean to economic growth in the midst of the Great Depression:

"The modern age opened; I think, with the accumulation of capital which began in the sixteenth century... From that time until to-day the power of accumulation by compound interest, which seems to have been sleeping for many generations, was re-born and renewed its strength. And the power of compound interest over two hundred years is such as to stagger the imagination.

For I trace the beginnings of British foreign investment to the treasure which Drake stole from Spain in 1580. In that year he returned to England bringing with him the prodigious spoils of the
Golden Hind. Queen Elizabeth was a considerable shareholder in the syndicate which had financed the expedition. Out of her share she paid off the whole of England’s foreign debt, balanced her Budget, and found herself with about 40,000 [pounds] in hand... Thus, every 1 [pound] which Drake brought home in 1580 has now become 100,000 [pounds]. Such is the power of compound interest!

If capital increases, say, 2 per cent per annum, the capital equipment of the world will have increased by a half in twenty years, and seven and a half times in a hundred years. Think of this in terms of material things--houses, transport, and the like.

At the same time technical improvements in manufacture and transport have been proceeding at a greater rate in the last ten years than ever before in history. In the United States factory output per head was 40 per cent greater in 1925 than in 1919. In Europe we are held back by temporary obstacles, but even so it is safe to say that technical efficiency is increasing by more than 1 per cent per annum compound. There is evidence that the revolutionary technical changes, which have so far chiefly affected industry, may soon be attacking agriculture... In quite a few years-in our own lifetimes I mean-we may be able to perform all the operations of agriculture, mining, and
manufacture with a quarter of the human effort to which we have been accustomed.

...All this means in the long run that mankind is solving its economic problem. I would predict that the standard of life in progressive countries one hundred years hence will be between four and eight times as high as it is to-day. There would be nothing surprising in this even in the light of our present knowledge."

Saturday, May 02, 2015

I have been reading the Younger Edda. I am not sure if I will finish it. Anyways, when I came to an account of the dwarves, I found I recognized many of the names.

"Then the gods set themselves in their high-seats and held counsel. They remembered how the dwarfs had quickened in the mould of the earth like maggots in flesh. The dwarfs had first been created and had quickened in Ymer’s flesh, and were then maggots; but now, by the decision of the gods, they got the understanding and likeness of men, but still had to dwell in the earth and in rocks. Modsogner was one dwarf and Durin another. So it is said in the Vala's Prophecy:

Then went all the gods,
The all-holy gods,
On their judgment seats,
And thereon took counsel
Who should the race
Of dwarfs create
From the bloody sea
And from Blain’s bones.
In the likeness of men
Made they many
Dwarfs in the earth,
As Durin said.

The above list includes all but one of the thirteen dwarves who travel with Bilbo Baggins in Tolkien's The Hobbit. These are Thorin, Fili (File), Kile (Kile), Oin, Gloin, Dwalin (Dvalin), Ori (Ore), Dori (Dore), Nori (Nore), Bifur, Bofur (Bafur), and Bombur (Bombor). (Presumably, Tolkien had a different opinion on the translation of the alphabet for the Eddas.) Balin, the remaining one of Tolkien's thirteen, is the name of a knight in Thomas Malory's Le Morte d'Arthur. Dain and Durin are two other dwarf names apparently taken from the Eddas. According to the Younger Edda, Gimle (Gimli?) is the name of a palace in the south of the world. Gandalf, Tolkien's greatest wizard, is also a name on the above list.